Aug 8, 2010

CLSA targets BW Plantation at Rp1,100

Fast growing CPO producer PT BW Plantation Tbk (BWPT) is a well managed plantation with an outstanding fresh fruit bunch (FFB) yield achieved in 2009, albeit from low base. In a report published by CLSA on August 3 2010, CLSA sets 12 month price target for BWPT is Rp1,100 per share. 
BW Plantation offers a significant potential growth with mature hectare will grow by 32% CAGR until 2013. 
This will allow FFB production to double to 700,000 tonnes within four years. The company hasn’t established its track record, but at US$8,800 EV/ha and 10.1x 2011 PER, it is looking very attractive.
BW Plantation is a fast growing palm oil plantation with a good management team. It achieved an outstanding 27.4t/ha FFB in 2009, though CLSA expects this to decline going forward. 
Total mature area will double to around 26,000 ha within three years. In addition, the company has just completed the development of its new jetty and pumping station in which will reduce the time taken for loading CPO to a day from 2-3 days which is lowering logistic costs for buyers. This will present a better chance to get higher ASP.
BW Plantation divested 1.2 billion of its shares or around 30% to public, raising Rp674 billion of fund in October 2009. 
The proceeds will be used to sustain its expansion plan. The company plans to plant around 10,000 ha of additional palm oil area every year which will require around Rp400 billion-500 billion of investments. With the aggressive expansion plan, total planted area should double the current size by 2013. Note that 1H 2010 result is still being audited.
Demand for edible oil will remains strong particularly driven by rising income in emerging countries and rising biodiesel consumption in Europe. 
Oil World forecasts global consumption of edible oil to outpaced production for the third times in a row this year. Meanwhile, unfavourable weather condition in several key edible oil producing countries will disrupt supply. In addition, CPO price looks very attractive from technical analysis point of view. In US$ term, it has just broke its resistance after a long term consolidation.
BW Plantation is a newcomer in the stock market and will still need to establish its track record. Despite the stellar operational performance, the company currently still trades at US$8,800 EV/ha and 10.1x 2011 PER, among the cheapest in the industry. 
"We think at the current share price, the risk and reward is looking very appealing. Our fair value is based on blended valuations of 13,000 EV/ha and 11x 2011 PER," the report said.
Disclosure: No position at the stock mentioned above.  

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